EarlyBird III is a completely mechanical day trading system that trades the S&P 500, Russell 2000 and S&P
Midcap, full-size and e-mini contracts. It is built on the foundation of the original EarlyBird technology, which was first released in April, 1999. The system may be purchased ($995), or it may be leased for as little as $50 per month. Original EarlyBird is recommended by Future Truth as one of the Top Ten S&P day trading systems, and it is frequently among their Top Ten listings. EarlyBird III was submitted to Futures Truth for third-party verification in March, 2003.
WHAT IS EARLYBIRD III?
EarlyBird was originally released and traded in April, 1999. EarlyBird II, released on August, 2002, added a sub-system that captured an additional trading pattern. EarlyBird III, released on January 9, 2003, added two more trading sub-systems, for a total of five. In over 5 years of real-time, out-of-sample performance, EarlyBird has successfully navigated a variety of market conditions, and is cumulatively up hypothetically over $78,000 on a single full-size S&P ($200 slippage/commission deducted). For background information on the development of EarlyBird, please click here.
EarlyBird looks for a particular type of volatility and uses a specific measure of market strength and directionality that is very predictive of days that have strong swings. Rather than indicators, time and price measures determine these tradable days. By being selective, EarlyBird reduces risk 1.) by trading only about once per week on average, therefore not incurring the risk of frequently being in the market, and 2.) by participating on days when volume propels price, lending liquidity for better fills and strong price movement for healthy profits per trade. Because of this selectivity, there are periods when the systems do not trade at all and other periods where they trade frequently. It is this ability in adjusting to market conditions that has helped EarlyBird succeed.
EarlyBird III is composed of five separate subsystems that are integrated around the strategy of choosing trade days that are most likely to produce profits. Each sub-system was created to capture a unique market pattern. Because it trades a number of patterns, EarlyBird has the extra stability gained from trading a portfolio of systems: when one sub-system is in a drawdown, there is a likelihood that one or more of the others will compensate.
Trade days begin with one of three subsystems signaling an entry (if no entry order alert appears by the first hour of the market, there will be no trade that day). Only one
contract is traded at a time, and on most trade days only one trade occurs. The Trend sub-system provides the
Hypothetical Performance of EarlyBird III
Average Yearly Drawdown
Rec. Account Size
Avg Months of data
Avg Annual Return
Chance of losing 35% of
Total Trade Days
Winning Trade Days
Losing Trade Days
% Profitable Trade Days
Largest Losing Day
Average Losing Day
Largest Winning Day
Average Winning Day
Average Trade Day
2003 (Jan - Dec)
EarlyBird III Risk
One method of looking at risk is the "risk of ruin" calculation detailed by Perry Kauffman in Smarter Trading (from Ralph Vince). This formula looks at average win/loss and percent win/loss to determine what the chances are a certain loss ("ruin") will be incurred. Assuming a $30000 size account and using $200 slippage/commission trading the S&P yields the following:
Drawdown Chance of this drawdown occurring
$3000 (10% of account) 32%
$6000 (20%) 10%
$9000 (30%) 3%
$12000 (40%) 1%
$15000 (50%) .3%
$18000 (60%) .01%
These numbers indicate that it is reasonable to expect a drawdown for EarlyBird III would rarely exceed $9000 on closed trades (3% chance).
In 5 years of cumulative, out-of-sample, real-time performance, EarlyBird on the S&P is currently up over $78,000 ($200 slippage/commission deducted).
S&P 500 9/13/96-
present; $200 s/c
Subsystem EarlyBird I EarlyBird II EarlyBird III
Counter Trend Failure
Robustness & Out-of-Sample Results
majority of the trades, and it is based upon entering after
trend and strength have been determined and a breakout occurs. The next highest percentage of trades is from the Trend Retracement module, which looks for a strong move and a pullback. The smallest percentage of trades of the three primary entry modules is the Counter Trend sub-system, which determines that the market is overextended and ready for a counter move. The two remaining subsystems--the Trend Failure and Counter Trend Failure--only engage after one of the initial three module trades has closed as a loser or small winner and an important support/resistance level has been pierced.
All entries and exits are stops or limit orders. Each of the five subsystems has its own set of entries and exits, although some are similar to or the same as others, depending on the particular market pattern upon which the entry is based. In most cases stops move to break-even or lock-profit after the trade advances favorably; profit objective limit orders are also used in four of the five subsystems.
The purchase price for EarlyBird III includes all three versions. Special pricing is available for existing purchasers.
To understand the differences between the three EarlyBird systems, see the table below. This shows the subsystems included in each version.
This chart shows the original in-sample study period of 9/96-3/99, and the out-of-sample, real-time trading period from 4/99-present. This real-time period is composed of the version of EarlyBird that was most current at the time.
This chart shows the EarlyBird III hypothetical results for SP, RL, and MD from 9/96-present.
The biggest single concern of a system trader is whether the system will hold up in real-time performance. There are several factors to consider in making a judgment about EarlyBird III. First, original EarlyBird has operated profitably for over 4.5 years since release, generating over 50% of the profit of the in-sample period. EarlyBird III is based on the core of EB I, and over 50% of its entries are exactly those of EB I. Therefore, the base of the EB III trades has been proven in real-time. Additionally, second only to real-time results, out-of-sample results provide the most accurate look at the robustness of a system. Applying a system to other markets gives a revealing glimpse of how it may perform in the real world, since these other markets are out-of-sample. EB III performs well on other indexes, including the Dow Jones, Russell 2000 (see the Performance Reports), and the S&P 400 Midcap (it is also very profitabe on the Nasdaq, but its performance is flat in the last 2 years), even though it was originally never developed or tested on these markets. Because EarlyBird was not applied to these other markets until after it was released, their results are entirely out-of-sample.
Lastly, EB III is profitable on the out-of-sample S&P period prior to 9/96. The EarlyBird systems were designed to take advantage of the increased volatility in the S&P market that began in late 1996 with the increasing globalization of markets and the advent of the e-mini in 1997. For each of the systems, the test period used in developing the rule sets and parameters was from September, 1996 on. However, when applied to the 10+ prior years of 1/1986-9/1996, all three systems are profitable. This time period provides validation of the test period results, verifying that EarlyBird II outperforms EarlyBird I, and that EarlyBird III outperforms both I and II. It is also noteworthy that the maximum drawdown decreases from version I to III, and the percentage of winners increases.
Although the value of the large S&P contract was $500/point during this period, the results below use the current value of $250/point. Because of the fact that the S&P stood at much lower levels than at present and that it trades in increments of .05, a lower slippage/commission of $50 was used.
The results are as follows:
net gain max. drawdown wins losses
EarlyBird I 12425 5788 7180
EarlyBird II 21663 4925 6353
EarlyBird III27825 3563 7859
EarlyBird III Combined Results for S&P 500, S&P Midcap, & Russell 2000
*For the purposes of this site, "real-time" means trades and results that are out-of-sample, i.e. they occurred after the rules for EarlyBird II were established. "Real-time" does not necessarily refer to actual trades taken. Trade discrepancies are resolved in favor of CME Time & Sales and CME "last" trade.
Commodity trading bears a high degree of risk. People can and do lose money. Past performance does not guarantee future results. Hypothetical numbers have many inherent limitations. Please read the disclosures & disclaimers page.
TradingVisions Index Systems, Inc. Spokane WA 99217-7737 509-466-8435
*Positive expectancy is a measure of how much the system can be expcted to make per dollar risked. It is the ((probability of a winXaverage win)-(probability of lossXaverage loss))/[average loss].